Tax season is just around the corner, and as a private practice therapist, it may feel like your finances are looming over your head. Will you manage to file your taxes accurately? Where will you find the time amidst a full caseload of clients? And—perhaps the most stressful question—how much will you owe the IRS?
Fortunately, along with tax season in private practice comes the art of tax deductions and write offs. Though it may sound emotionally and financially daunting at first, getting a firm grasp on tax deductions can be quite advantageous and save you hundreds or thousands of dollars for your business. By running your own private practice, you are able to deduct or “write off” many business-related expenses from your income, and will be taxed on the remainder for your typical income tax.
Here are some common tax deductions to be aware of, especially for those just starting out in private practice:
- Advertising. This can include a variety of promotional costs, such as business cards, online or print advertisements, promotion in online directories, or paid search.
- Business meals. Meals purchased for business-related purposes, such as lunch for a meeting with a co-worker, client or consultant, can be eligible for deduction.
- Bank fees. Additional fees from the bank can be deducted; this can include checking account fees, interest, or credit card processing fees.
- Vehicle use for business. Granted you are using your car for business-related use outside of your regular commute, your mileage may be deductible, as well as general upkeep expenses on your car.
- Membership fees. If you belong to any professional organizations, such as the APA, these expenses can also be deductible.
- Education. Many therapists choose to continue their education, attending courses, workshops and conferences to further improve their skills and learn how to run their own businesses. As long as these endeavors apply to your practice, the costs can be written off.
- Home office expenses and supplies. This is especially important during the COVID-19 pandemic, as we’ve all spent who knows how much on home desk set-ups and supplies we may have already had in the office. These can include pens, scissors, staplers, printer ink, postage, small furniture pieces and cleaning supplies.
- Software services. Any practice management software, along with business software such as Google Drive, is eligible for deduction.
- Rent and utilities. If you run your private practice from an office, your rent and utilities (such as a phone or electric bill) can often be written off. If you’re working out of your home or sharing utilities for business and personal use, this can get tricky -- you’ll only be able to deduct for your percentage of business usage.
- Business registration and license fees. This is particularly important if you’re new to private practice this year; you’ll be able to write off a lot of the startup business costs. Renewal of your license can also be written off.
- Travel expenses. Deductions from travel can add up quickly. This includes anything used for business purposes, and typically requires that you are away from your residential city for at least 24 hours. Costs eligible for deduction include mileage, meals and parking.
- Personal therapy. Are you seeing your own therapist? Money spent on personal sessions can also be deducted on your tax return.
- Depreciation. This write off can often be difficult to understand, but essentially it entails any larger purchases over $2,500. (For therapists, a common write-off in this category is office furniture.) You can choose to deduct these purchases from your taxes in the first year after purchase, or in small increments over the years the item is used.
The list goes on, with additional write-offs available for costs such as insurance, legal or professional fees, moving expenses, and salary and benefits for any private practice owners who have employees. Tax deductions can definitely come in handy, and the key to maximize them (and your sanity) is to keep all your business finances separate from your personal expenses and well-organized. This way, when the end of the year rolls around, you’ll have all of your business expenses in one place.
While the above list is a general overview of some helpful write offs, it’s important to remember that your deductions can vary based on your business entity and personal situation. At Heard, we recommend working directly with a financial advisor to file your taxes, and offer free consultations to help make tax season easier and improve the financial health of your private practice.
Heard is a bookkeeping and tax platform for therapists, intended to ease the financial burdens of mental health therapy services and track the financial health of your practice. Schedule your first consultation at joinheard.com.